Why not Give the $700B to Homeowners?
As an ordinary citizen with college-101-level economics expertise, I am puzzled by what is absent from the current financial rescue proposal: that all or some of the $700 billion be given directly to homeowners who lost or are about to lose their homes through foreclosure, instead of the Wall St. securities firms, banks, investors, insurance companies, etc.
As I understand it, the weakened housing market remains at the center of the economic storm, and things won't truly turnaround until it stabilizes (as with Japan in the '90's). A family behind in mortgage payments could use government aid to stabilize their finances and keep their home, which I assume is better for the housing market than for the house --and neighborhoods full of such houses across America-- to sit empty until a new buyer comes around.
It also seems better for communities and employers to have fewer people missing work, relocating, and kids missing school as inevitably happens to people who lose their homes. People who are scrimping to make mortgage payments would likely redirect more spending on consumer goods, which would stimulate economic activity.
I can imagine all the arguments against this --that consumers who defaulted on mortgages can't be trusted with the money; it would just be a temporary fix until homeowners fall behind again next year; it isn't fair to Wall St. investors.
But the folks running institutions like AIG and Lehman Brothers, if anyone, have proven they cannot be trusted with other people's money (and they seem likely to pocket much of it for themselves, rather than help people keep their homes). And I don't see how "fairness" has ever been an argument for the recent round of bailouts --it's all about keeping the economy healthy, right?
I'll cheerfully listen to any generous post explaining the economics of why giving this money to taxpayers is the dumbest idea ever, or why the feds shouldn't just nullify some of the variable-rate mortgages that gullible consumers signed-on for.
As a taxpayer, I'm much more willing to help struggling neighbors than the jerks on Wall St., and --politicians take note-- other taxpayers surely feel the same.
As I understand it, the weakened housing market remains at the center of the economic storm, and things won't truly turnaround until it stabilizes (as with Japan in the '90's). A family behind in mortgage payments could use government aid to stabilize their finances and keep their home, which I assume is better for the housing market than for the house --and neighborhoods full of such houses across America-- to sit empty until a new buyer comes around.
It also seems better for communities and employers to have fewer people missing work, relocating, and kids missing school as inevitably happens to people who lose their homes. People who are scrimping to make mortgage payments would likely redirect more spending on consumer goods, which would stimulate economic activity.
I can imagine all the arguments against this --that consumers who defaulted on mortgages can't be trusted with the money; it would just be a temporary fix until homeowners fall behind again next year; it isn't fair to Wall St. investors.
But the folks running institutions like AIG and Lehman Brothers, if anyone, have proven they cannot be trusted with other people's money (and they seem likely to pocket much of it for themselves, rather than help people keep their homes). And I don't see how "fairness" has ever been an argument for the recent round of bailouts --it's all about keeping the economy healthy, right?
I'll cheerfully listen to any generous post explaining the economics of why giving this money to taxpayers is the dumbest idea ever, or why the feds shouldn't just nullify some of the variable-rate mortgages that gullible consumers signed-on for.
As a taxpayer, I'm much more willing to help struggling neighbors than the jerks on Wall St., and --politicians take note-- other taxpayers surely feel the same.
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Are you sure you took economics 101? What did you get in tha class? Was it a correspondance course? Are you just being provocative? Am I giving you too much credit by asking if you are just being provocative?
September 23, 2008 2:04 PM | Reply | Permalink
There has been talk of adding a provision in the bailout allowing judges to re-write the mortgages of bankrupt homeowners to avoid foreclosure, but the Bushies oppose it. This might be a safer bet than direct cash aid to homeowners.
September 23, 2008 4:25 PM | Reply | Permalink
If you listened to the hearing yesterday it was revealed that the majority of what we will be buying will be defaulted loans, student loans, car loans, etc that will have no real asset to take possession of but just bad debts. Also, mentioned were "mortgage related" paper. No assurance that any asset was actually attached to that paper.
If you had listened to the hearings on the sub-prime mortgage meltdown, you would have learned that many of the mortgage paper bundled and sold are no longer attached to real property.
I believe what caused the big gulp in Washington is foreign entities have caused a run on the banks to recoup money invested in this bad paper. Unfettered corrupt free-market principles exposed for the pyramid scheme it has become.
The real elephant in the room no one is talking about is the rise in home prices versus the median income of Americans. The sub-prime crisis was inevitable, I saw it coming when home values increased at an alarming rate. Stort term gains in fast turnovers without real value added on. Incomes did not rise to meet these new values. Absurd deals had to be sold to increase home ownership.
The very first regulation that needs to be enacted is outlawing ARMs. Anyone with an ARM should be allowed to refinance with a fixed rate mortgage.
September 24, 2008 7:59 AM | Reply | Permalink
I did not catch yesterday's hearing, but have read several news reports that there are no real assets attached to the paper taxpayers are poised to buy. And I couldn't agree more about the need to reign in ARMs.
This still begs my original question: if taxpayer money is to be "pumped into the system" (and maybe it truly need not be), why shouldn't it be targeted to consumers instead of/in addition to financial institutions?
The Democrats were already proposing a second stimulus package before last weeks meltdowns. I assume there are plenty of families who lost those homes, cars, and student loans who need to "financially reorganize" as urgently as these financial institutions.
September 24, 2008 11:52 AM | Reply | Permalink